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Clients Continue to 'Stay the Course' With Portfolios, Advisors: Fidelity

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Fidelity Investments‘ latest research shows that tensions currently exist between client objectives and risk. At the same time, though, clients’ asset allocation  including sectors and styles  did not change  significantly from the first quarter to the second, when the coronavirus pandemic erupted in the U.S.

“In these uncertain times, advisors have really helped their clients ‘stay the course’ and remained focused on their long-term goals through the ups and downs of the market,” Matt Goulet, senior vice president for portfolio solutions at Fidelity Investments, said in a statement.

The giant asset manager recently analyzed a study conducted by Callan Associates that calculated the expected return for different levels of risk from 1995 through more recent years. (In 1995, for instance, an investor could expect a return of 7.5% by investing entirely in bonds.)

To achieve that same level of return in recent years, an investor would have had to nearly triple the portfolio’s risk by investing in a mix of bonds, U.S. large- and small-cap stocks, international stocks, real estate and alternatives.

What’s in Portfolios Today?

In the first half of this year, Fidelity reviewed 3,972 unique portfolios created for clients by third-party financial advisors that were submitted through Fidelity Portfolio Quick Check or in consultation with the firm’s portfolio construction guidance team.

The average portfolio submitted by advisors comprised 14  holdings, seven different asset managers and 61 basis points of underlying blended fees, according to the data.

Seventy-nine percent of the average portfolio was allocated to active management. The analysis finds that over time, advisors reallocated to active management from passive in certain asset classes.

For example, they raised their allocation to active fixed income from 68% in 2016 to 88% in 2020, and to active international from 48% to 63% over the same period.

In the context of the Callan Associates’ research about investors achieving higher returns with more risk, the Fidelity analysis concludes that 43% of the average fixed income portfolio was allocated to satellite positions, which were highly correlated to high yield and equities, vs. investment-grade core positions.